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Special Report on QBPC 2021-2022 Top Ten Cases Sharing Session

Create Time:2022-09-23

On September 8, 2022, the 2021-2022 Top Ten Cases Sharing Session of Quality Brands Protection Committee (QBPC) was successfully held in Xiamen. Around 100 people, including leaders of central and local IP-related departments, representatives of law enforcement authorities, experts and scholars, representatives of trade associations and enterprises, participated in the activity on-site or online. Zhang Honghai, QBPC Best Practices/Enforcement Committee (BPEC), presided over the event.

In his opening remarks, Zhang Hongkai said that the Annual Top Ten Cases Selection, as an icon program of QBPC, has accompanied QBPC and its members for more than two decades. During this process, while being recognized by relevant government agencies and supported by judicial organs and law enforcement authorities, the event also enjoyed a high reputation in international IP community and became an indicator of China’s investment and IP environment for international observers.

The sharing session featured three panel discussions, focusing on criminal, civil and administrative protection. Representatives from Schneider Electric, Victoria’s Secret, Unilever and Emerson Electric shared their experience in relevant cases.

 

Panel 1: Best Practice Sharing of Schneider Electric 

The Panel Session was moderated by BPEC Vice Chair Nora Zhang. Paul Lu, IP Director of Schneider Electric APAC, and attorney Yu Bo respectively shared the inspiring cases of Schneider Electric and explained the trend of OTO (Online to Offline) cases based on the criminal cases of Schneider.

 

In the beginning, Paul introduced three classic cases of Schneider. The first one was the case of Duan and other people Producing and Selling Counterfeit “Schneider Electric” Registered Trademark Products, which was selected as QBPC Top Ten Criminal Cases of this year. In this case, eight criminal suspects sold counterfeit products through 13 online stores with a sales revenue of nearly 3 million yuan. The infringement took place from 2011 to 2019 and involved five provinces. The case was handled by two law enforcement departments and 60 policemen from public security authority; The two principal offenders were sentenced to fixed-term imprisonment with a fine up to 1,595,000 yuan in total. This case was highlighted by online and offline cooperation, and how to sort out online leads and then leverage them offline.

 

Then, Paul analyzed the case of Trademark Infringement Litigation: Schneider Electric (China) Co., Ltd. v. Hangzhou Dongheng Electric Co, which won the Annual Top Ten Civil Cases of QBPC. The key words of this case included serious infringement, false financial data disclosed by the defendant, obvious malice, long duration of infringement, and high popularity of the trademark involved. The plaintiff's claim for the compensation of 3,000,000 yuan was supported in full. 

 

The third was the administrative litigation case of "Scnmertcn Electric" maliciously copycatting the well-known trademark of "Schneider Electric". The highlights of this case were that the disputed trademark had been registered for more than 8 years when it was first declared invalid, which made the invalidation more difficult; the responsible departments took more factors into consideration and was more flexible in determining whether the trademark had reached the well-known status; the newly-received recognition of well-known trademark during the administrative litigation had a positive impact on the judge's evaluation of evidence; at the same time, the case further advanced the recognition time of the cited trademark from 2011 to 2009, which was of great significance for the future protection of the brand; the investigation found that the trademark in dispute had a strong malice of copycatting in actual use, and also caused serious market confusion, which also had a positive impact on the determination of this case.

 

Next, Yu Bo, the lawyer in charge of the criminal case of counterfeit Schneider products, gave a presentation with the topic of "the treatment of the counterfeit industry chain through the OTO model with the example of the crime of counterfeiting registered trademarks by Duan in Jiaxing", and introduced in detail the highlight of the online to offline criminal cases. OTO, in short, was an online to offline case operation mode - clues were initially found online, and finally attacked offline. According to Yu Bo, affected by the epidemic, the traditional offline real economy had shrunk while e-commerce had surged with soaring volume of live web-based transactions. Meanwhile, the decline in domestic purchasing power led to an increase in cross-border businesses. All of the above factors were challenges encountered in OTO cases. On the other hand, treating the counterfeit sales chain through OTO cases was more effective to a certain extent than offline cases.

 

Afterwards, Yu Bo introduced the operation modes and details of OTO cases both inside ang outside China through specific cases. For the case of Duan in Jiaxing, the investigation of infringement clues and the research and judgment process required the full cooperation from the platform, the right holder, the agency and the public security department. Among them, the right holder provided support in IP identification; the e-commerce platform provided data support, such as the relevant information of the registrant; the agent was responsible for sample purchase and field investigation to further carry out online or offline investigation; the law enforcement department played a particularly important role in analyzing data and creating action plans to implement crackdowns and arrest the responsible parties. The operation successfully terminated the entire chain of production, processing, online and offline sales of counterfeit goods. It brought about significant deterrence in the distribution area and effectively curbed the local infringement. Therefore, it was put on the list of cases supervised by Provincial Public Security Department in Zhejiang.

 

In addition, Yu Bo also introduced a cross-border OTO case in the livelihood field, especially the four highlights of the case. One of the obstacles of the case was that the investigation of cross-border infringement was more difficult than that of domestic infringement, which tested the close cooperation and investigation ability of the agency and the public security authorities; at the same time, the relationship between tort gangs was complex, which tested the organizational capacity of various parties including the public security, the internet supervision department, the economic investigation department, the investigators and the right holders; with regard to diverse targets, it was necessary to coordinate the law enforcement departments in different provinces to achieve simultaneous action in detention, which emphasized the coordination; in addition, under the influence of majeure factors of recurred epidemics, it took only six months from the official public security case filing to the conclusion, which reflected the excellent execution of all parties.

 

In the following Q&A session, Paul, as an in-house lawyer, shared the key considerations in formulating the enterprise's IPR protection strategy. He emphasized that corporate IPR protection could be a long-term task, which needed relentless efforts. However, all efforts were not in vain, and the experience accumulated over a long period was bound to provide reference for handling future cases.

 

Nora said that due to the impact of the epidemic, there had been a trend in recent years to shift the focus of real business to online, which had a profound impact on both right holders and the e-commerce platforms. With regard to the challenge of OTO cases for right holders, Yu Bo believed that the infringers' crimes were more covert and difficult to combat due to less clues from offline physical evidence and increasing online sales channels, the dispersion of sales platforms and the expansion of the scope of counterfeit sales. In this regard, he proposed several solutions: in addition to strengthening online supervision, interaction with the customs authority is also critical. Right holders could strive to suppress infringement in China through customs training and other activities while strengthening the interaction and cooperation with law enforcement departments at all levels.

 

With regard to effectively preventing infringements such as false publicity by overseas social media, Yu Bo suggested that some measures be taken against infringers through local foreign agencies or relevant law enforcement agencies. For infringers who were rooted in China and spread their advertisements abroad through social media, the right holders could only collect online information abroad, and then conduct offline investigations in China.

 

Finally, Nora summarized the remarks made by two guest speakers. In the process of enterprise interaction and when in-house lawyers formulate strategies, a combination of criminal, civil and administrative means was needed to combat infringement, protect IPR of the enterprise, and improve the domestic business environment. Meanwhile, in practice, the offline implementation of OTO cases and recognition of well-known trademarks also could also provide members with informative cases and practical experience. If the audience could got inspiration and reference from them, this sharing had achieved its purpose.

 

Panel 2: Best Practice Sharing by Victoria’s Secret & Co

 

Hongkai Zhang moderated the discussion on Panel 2. Jessica Li, Director of Brand Protection from Victoria's Secret & Co and Michael Yu, North-Asia Brand Protection Head of Unilever had in-depth discussion on how member companies could protect their IPRs through civil litigation, and what strategy in-house lawyers should adopt on punitive damages.

 

First, Jessica briefly introduced the two brands and the brand protection department under Victoria's Secret Company. Then, she shared her thoughts on the trademark infringement case that was selected as QBPC Top Ten Cases this year. In 2013, a batch of counterfeiting cosmetics bearing "Victoria's Secret" trademark was seized by Republican Dominica's customs authority, which led to the discovery of the infringer, Yiwu Mei** Cosmetics. After receiving multiple investigations and numerous administrative strikes, the infringer moved the factory, changed the name and address of the factory in 2016 to dodge punishment. In 2017, Yiwu Public Security Beau and Market Supervision Administration jointly launched a raid against the company operated by the infringer Si**. Over 30,000 pieces of goods were seized on site and the infringer was sentenced to a term imprisonment with a fine of RMB 240,000. After that, the infringer did not stop the infringement and took more subtle actions to put the infringing goods on the market instead. In 2021, Victoria's Secret filed a civil lawsuit with Yiwu People's Court against the Company Si** and its actual operator for trademark infringement. Through the retrieval of files related to 10 criminal raids conducted by market supervision and customs authorities, the plantiff sorted out the correlation between the raids and adopted five of them as evidence. In this case, the total seizure of infringing products in five raids was taken as an important basis for compensation, which proved the duration, scale and subjective intention of infringement, and the claim for the application of punitive damages was accepted by the court. As a result, the court decided that Yiwu Si* * Cosmetics Co., Ltd. and the actual operator compensated the economic loss of RMB1.85 million.

 

There were three highlights in this case: First, under the identification of infringement, Chen and his wife were the actual operators of the Mei * * Company and the Si * * Company, forming a mixed personality, which was proved by the collected evidence. Second, by sorting out the correlation between the raids, it was proved that the duration of infringement was long, the case involved a wide range of regions, and it constituted a subjective intent. Therefore a punitive damage should be applied. Third, in terms of compensatory damage, the court eventually adopted the calculation of the compensation loss proposed by Victoria's Secret Company as the basis, and finally decided on the compensation according to the loss of the right holder.

 

Then, Michael shared the first case of punitive damages applied to the export category target of the daily chemical industry - Unilever v. Wang in Trademark Infringement Dispute. The case had two main features: the first was that the case lasted for five years and went through all three procedures including administrative, criminal and civil litigation.With the help of QBPC, the plantiff was able to cooperate with other right holders, such as Johnson & Johnson, during the administrative and criminal stages of the proceedings. This demonstrated the active role of QBPC in the investigation and case promotion process. The second point was that, by filing civil lawsuits after the verdict of the criminal case had taken effect, the plantiff aimed to protect its commercial interests and brand value while displaying its social responsibility and zero tolerance towards counterfeit goods, so as to maximize the infringement cost of the infringers, which was also the consensus reached by all members of QBPC Personal Care Industry Working Group.

 

Michael focused on how to apply punitive damages to key civil litigation in this case. For the civil application of punitive damages, the first important step is to determine the base and multiplier. For the determination of the base in this case, the right holder advocated for the actual loss as damages and chose the calculation method of actual loss as sales revenue of infringing products multiplying profit rate of the plaintiff, while the calculation of the multiplier was considered based on both subjective and objective factors. The right holder provided evidence on the popularity of the trademark involved. Meanwhile, according to the fact proposed by the Yangpu District Court in particular in the civil lawsuit judgment that the main infringer continued to produce and export during his release on bail, which proved obvious subjective malice in the case. At the same time, there were other objective factors, such as the infringer was found to make a living on infringement, the right holder defended its right for five years, and the large scale of infringement. As a result, punitive damage was finally applied.

 

This case was a very typical IP protection case of all-round administrative, criminal and civil litigaiton. The right holder made full use of all legal tools to defend its rights at all stages. At the same time, the administrative and law enforcement authorities, the Market Regulation Bureau, the Customs, the Public Security Bureau, the Prosecution authorities and the Courts also gave great support to the right holder.

 

In the following Q&A session, Hongkai and the two speakers discussed the status and trends about the application of punitive damages as well as how to understand the combination of civil litigation and other protection methods, and how to convince the management to resort to civil litigation.

 

As for punitive damagesJessica believed that legal compensation was still the mainstream and the punitive damages cases were still rare. At present, punitive damages could not be applied in all cases. The main obstacle was how to calculate the compensation base and prove infringer's profit. The in-house lawyers should pay attention to the relevance of investigation reports in daily work and conduct meticulously sorting and summarizing of case files in a timely manner.

 

Michael believed that both punitive damages and statutory damages needed active and sufficient evidence. For punitive damages, the focus should be on the applicable elements. At present, the calculation method was still dominated by the profit from infringement. Secondly, when claiming for infringement profit, it was needed to further determine the base and multiples. So the relevant evidence was critical especially in the process of determining the base. Such evidence could be fixed by law enforcement actions or notarization. As for the determination of multiple, the two considerations were malicious intention and severity. Malicious intention includes repeated infringement and continuous infringement after receiving warning letters, such as basic information after administrative and criminal investigation, especially the characteristics of the infringer's use of trademarks, and even some preemptive registration could be used as evidence to prove malicious intention. The severity of the case depended more on the duration of infringement, as well as the results and scale of the infringement.

 

Hongkai briefly summarized the ideas of the two speakers on issues related to punitive damages, and then briefly shared his understanding from the perspective of his own industry. He then raised the issue of the combination of civil litigation and other protection methods as well as how to conduct internal communication in the campany about the adoption of civil litigation.

 

According to Michael, administrative, criminal and civil litigation were all means of defending rights, which was a complementary three-dimensional model. Different companies would have different processes for commencing civil proceedings. His employer had a very clear and established process for initiating civil lawsuits, enabling easy decision making for most civil actions. For cases with vague characterization of the infringement but having a great impact on business, they would cooperate with external lawyers to form an overall framework to fully elaborate on the necessity of civil litigation through element sorting and risk assessment, so as to provide reference for the final internal decision-making.

 

In recent years, according to Jessica, they had witnessed that the courts had been strengthening the equal protection for both foreign and Chinese brands by increasing infringement damages in civil litigation. Civil litigation would become an increasingly important means of enforcing rights. The aim of litigation was to maximize the deterrence over infringement while obtaining appropriate financial compensation. If the infringer repeated the infringement or if the criminal sentence or administrative penalty was too lenient, they would take civil action as a further means of defending their rights.

 

Panel 3: Best Practice Sharing of Emerson Electric Company

 

The third topic was moderated by BPEC Vice Chair Peter Yang. Frank Liu, Director of IP Department of Emerson Electric Company, was invited to share his experience and the highlights of two cases selected as the Top Ten Cases of IP Protection of QBPC.

 

The first topic was reflection on IP issue related to refurbishing used goods, which was triggered by the case of Wei Mouxin, Jia Mouhui and others producing and selling shoddy products. Frank Liu first introduced the course of the case, which lasted 10 months from the discovery of clues to the verdict. The court strictly distinguished the ideal concurrence of ‘the crime of producing and selling products with fake registered trademark’ and ‘the crime of producing and selling shoddy products’, and accurately applied principle of ‘inflict punishment with the heavier crime’ into prosecution and trial. All defendants were sentenced to imprisonment without probation. The main defendant was sentenced to eight-year imprisonment and fined one million RMB, which was relatively rare in industrial product infringement cases.

 

Regarding the highlights and significance of the case, Frank said that this case clarified that the action of refurbishing used products infringed IP rights and constituted criminal offense. Secondhand refurbishment was extremely harmful to industrial product companies. Limited by technology and manufacturing process, it was very difficult to directly copy high-end industrial products. So infringers in most cases just simply renovated the packaging of recycled products, and then resold them in the name of new products, which seriously infringed on the rights and interests of right holders. To handle it as a crime would effectively safeguard the interests of right holders and crack down on violations and crimes. In this case, PSB conducted enforcement on the whole chain, and arrested both manufacturers of refurbishment and downstream Taobao distributors, which proved that these downstream distributors were complices instead of customers, which effectively protect the real consumers’ rights and interests. In addition, Public Security Bureau, Procuratorate and the Court abandoned the common practice of ‘Quality appraisal must be conducted to prove that fakes do not meet the national standard on the same products’. Instead they comprehensively judged the case from aspects of the production cost, manufacturing process and quality management system and etc. As a result, they concluded that the refurbished products were ‘fake and shoddy’ products, which was of great significance to crack down on the refurbishment of used industrial products and protect IP rights.

 

Frank also shared his experience on IP protection of industrial products. He believed that finding out the business model of counterfeiting was the premise of effectively cracking down on the counterfeit goods. The right holders should understand howthe infringement occurred from production to sales, and then took different approaches and measures to combat infringement indifferent industries. In the practice of right protection, it could be found that the less substantial changes (repair/replacementparts), the more difficult it was to determine infringement. The counterfeiting industry had obvious regional concentration and fine industrialization division of labor. If there was no obvious geographical concentration, it not only indicated that the product fraud situation was very serious, but also showed that it was relatively easy to produce fake goods of this product and there was no technical threshold for production. Frank said that not all products on sales in the flea market or e-commerce platform (PoshmarkInc) were refurbished products. The right holders should carefully find out whether it was reverse infringement, distinguish maintenance from refurbishment, and identify patent infringement.

 

The second shared case was a civil case. Frank discussed the dilemma and solutions to the trademark squatting based on the Case of Squatting other’s Trademarks Constituting Unfair Competition, which was awarded the 2021 Most Influential Annual IP Case by the British Intellectual Property Management Journal (Managing IP). He said that the sharp increase in the number of trademark applications in China in the past decade had spawned a huge market for trademark transfer. It was impossible to rely solely on industry self-discipline to crack down on trademark squatting, and the act of squatting trademarks had put a legal cloak on illegal acts. Moreover, the act of squatting trademarks had forced right holders to register a large number of defensive trademarks. Frank detailed the litigation process of this case, which lasted 18 months from March 2020 to September 2021, and the tort was finally found by the court to constitute unfair competition.

 

Frank said that this case reflected that trademark right holders had faced the huge dilemma of rampant bad faith squatting, that was the economic cost of squatting trademark was very low while the right holder needed to pay a huge price to prevent bad faith squatting. At the same time, he believed that this case put forward a new solution in trademark preemptive registration. The right holder could claim that the behavior of the preemptor violated the principle of good faith in Article 2 of the Anti-unfair Competition Law and initiate a lawsuit for damages, which could make the trademark preemptor pay a price for his actions, and even the trademark agency had to bear the liability for damages (within 40%). This case effectively deterred the whole industrial chain of trademark squatting and demonstrated the court's determination to stop squatting and the creative application of civil compensation rules. This was the first and the only case in China in which a court ruled that pure trademark squatting constituted unfair competition. The ruling of joint liabilities would generate a very strong warning and deterrence to the whole trademark squatting industry. As for injunctive reliefs, the court unprecedentedly granted an injunctive order forbidding the defendants –the trademark squatter, their actual person in charge and the trademark agents – to register trademarks identical or similar with the “爱适易InSinkErator” trademarks.

 

Finally, he also said that the Trademark Office had made a lot of efforts to crack down on trademark hoarding and had achieved good results. The right holder could make the infringer pay the price through civil action, but the cost was too high. He hoped that this problem could be better handled through system reform in the future, such as requiring evidence of the use of the trademark when registering the trademark, submitting evidence of the use of the trademark regularly after the application, and increasing trademark consultancy fees to increase the cost of obtaining the trademark. At the same time, he believed that copycat trademark registration was more serious and more difficult to identify than hoarding trademarks, which should be paid more attention to.

 

In the Q&A session, Peter raised questions on each of the cases, including the strategy and experience of determining that the infringer with joint liability constituted subjective common intention, and how to provide a standard of proof when determining whether the products involved in the case constituted counterfeit and inferior products. Frank replied that the infringer had continuously squatted trademarks for ten years in the second case, and there had been obvious malicious acts, such as constantly changing trademark pattern, registering a new shell company, and continuing squatting after being found to infringe by the first judgment etc. The above behavior provided sufficient evidence for the right holder to prove its viciousness and the claim was supported by the court. In the process of identifying fake and shoddy products in the first case, it was found that the infringer's technical means of manufacturing infringing products were extremely low. During the police interrogation, the suspect directly answered "Just paint it and sell it". Therefore, the public security bureau, procuratorate and court did not require that it must comply with the national standard or a third party (accreditation body) must identify the fake and shoddy products. As long as it conformed to the obvious characteristics of "sell shoddy products as good, fake products as genuine, and unqualified products as qualified products", it could be identified as fake and inferior products.

 

In the end, Hongkai thanked the guests and hoped that they would enjoy the meeting. The sharing meeting was successful concluded!